Ways of conducting individual activities.
We recommend this form of activity when you are sure that you are able to implement your business idea on your own, and especially when you are planning to implement economic-commercial activities for a limited period of time.
Individual activity means:
- independent commercial or production activities of any nature, including business activities under business certificates (manufacture of textiles, repair activities, etc.);
- independent creative work, professional and other similar independent activities, including business activities under business certificates (lawyers, notaries, etc.)
- independent sports activities;
- independent performers’ activities (actors, musicians, etc.)
The personal income tax (gyventojų pajamų mokestis or GPM in Lithuanian)
5%-15% tax is applied for persons performing individual activities. Non-residents are taxed at the same rate as residents (for income obtained in Lithuania).
Mandatory health insurance (Privalomasis sveikatos draudimas or PSD in Lithuanian) gives access to free health insurance services (to the majority of them). If the person is not insured with PSD s/he has to pay for medical services.
The Compulsory health insurance (PSD) size is 6,98 percent. It is calculated from the income, from which the social insurance contributions are calculated from, meaning – 90 percent of taxable income (without deducting VSD and PSD payables).
The main goal of the state social security system is to guarantee income for the insured when they are not able to work due to sickness, maternity, age, disability or other reasons. The social security tax has to be paid also by self-employed persons, athletes, artists, and others.
The contributions (payables) to “Sodra” are paid from the 90 percent of the taxable income from the individual economic activity (without deduction of State social insurance (VSD) and Compulsory health insurance (PSD).
VSD contributions rate:
14,62 percent if the person saves for a supplementary pension (2,1 percent);
15,52 percent if the person saves for a supplementary pension (3 percent);
VAT is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption. It is a tax paid by consumers. The standard VAT rate in Lithuania is 21 %. The reduced VAT rates are as follows: 0%, 5 %, and 9%.
You may choose between two options:
- become self-employed without taking out a business certificate;
- become self-employed according to a business certificate.
|Evaluation criteria||Self-employment according to a business certificate||Self-employment according to a certificate of self-employment|
|Number of participants||A person and a person’s family members, if they are indicated in the business certificate||Sole owner|
|Restrictions of activities||Only the activities specified in the list of types of self-employment activity (which require a business certificate)||All types of economic commercial activities, except those that can only be undertaken by a legal entity|
|Minimum capital amount||There are no requirements regarding capital.||There are no requirements regarding capital.|
|Duty to register as a VAT payer||If the turnover exceeds 45 000 Eur||If the turnover exceeds 45 000 Eur|
Note the key difference:
- A business certificate – an advance payment of a fixed income tax is required.
- Self-employment certificate – the income tax is paid upon the end of the tax period (by 1 May).
- Self-employment – an individual activity that brings income or any other economic benefit to the resident during a continuous period.
Obtaining a self-employment certificate
- A self-employment certificate is a document certifying that a person has registered his activities at the local State Tax Inspectorate (hereinafter referred to as the STI) and is entitled to perform the activities indicated in the certificate.
- The application for the issue of a self-employment certificate is submitted not later than on the day of the launch of the activities. The application can be submitted at a STI division, via mail or e-mail. If a person decides to terminate his activities, he must notify the STI within 5 working days before the planned day of termination.
- When independent activities are performed under a self-employment certificate, the income tax is paid from the actual annual income from individual activities. When calculating the taxable income from the earned revenues, it is possible to deduct allowable deductions (costs incurred for earning revenues). When a simplified procedure is applied, a fixed amount can be considered as allowable deductions, for example, 30% of all the revenues gained from independent activities. At the end of the year, persons declare their revenues and pay the established taxes. A person performing individual activities under a self-employment certificate must fill in the Income and Expenditure Accounting Register and issue one of the accounting documents: a receipt for the goods (services) bought or sold, an invoice, a VAT invoice, or a cash register receipt. Detailed information is specified in the Rules of Accounting of Residents’ Individual Activities (except for residents holding business certificates).
Individual activities under business certificates
- A business certificate is a document certifying that you have paid a fixed fee for a business certificate and have the right to perform the activities indicated in the business certificate for a certain period of time, to sell the goods you have produced and to render services to residents and legal entities. Business certificates are issued only for certain types of activities.
- To obtain this document, one must address a local division of the State Tax Inspectorate. A business certificate can be issued for the period indicated by the applicant, but not exceeding one calendar year and not shorter than 5 days, except for trade business certificates (trade business certificates can be issued for 1 or several days, or a longer period, but not exceeding 1 calendar year). The accounting of activities performed under a business certificate is very simple. Persons, who do not use a cash register for the accounting of revenues, must fill in the income and expenditure accounting register. Upon the buyer’s request, the seller must issue a sale and purchase receipt.
- A person can perform activities under a business certificate only when he is not required to register as a VAT payer or is not registered as a VAT payer.
- A person having obtained a trade business certificate cannot sell goods to another person performing trading activities (the one who has obtained a business certificate, and the one who has registered individual activities), i.e. wholesale trade under a business certificate is not possible.
- A business certificate does not grant the right to engage in licensed activities
If you undertake an activity according to a certificate of self-employment, you may actually engage in any type of economic commercial activities which meets the criteria of independence, continuity and commercial advantage, except the activities which require incorporation of a legal entity in accordance with legislation, the activities which require permits and licenses, also the practice of a lawyer, if in accordance with the Republic of Lithuania Law on the Bar the person does not meet all professional and qualification requirements. Information about licenses for the specific types of activity is available under “List of permits”.
Comparison of individual activities with business activities of a legal entity
|Individual activities||Activities performed by a legal entity|
|1. Incorporation procedures||Documents for submission: fewer documents are required for submission; these documents are simple and require no special knowledge to prepare them.
Time resources: 4 to 10 working days.
Documents for submission: the list of required documents is considerably bigger. The majority of incorporation documents must be certified by a notary.
Costs: notary fees, duties paid to the Centre of Registers, etc.
Time resources: 2-3 weeks.
2. Comparison of requirements and preconditions for the launch of activities.
The authorized capital: this requirement is not relevant since the legal acts do not specify any requirements related to solvency (the available assets).
Staff employment: a person may act on his own (however, legal acts provide for a possibility for employing other employees).
The authorized capital: legal acts specify the required amount of the authorized capital.
Staff employment: more employees, are usually required, therefore, it is necessary to conclude job agreements with them.
3. Options for termination of business activities are not difficult to terminate business activities irrespective of the person’s liabilities. Activities conducted by legal entities are terminated through reorganization or liquidation. The procedure of termination of business activities lasts longer, because the legal entity must meet all its commitments.4. Comparison of requirements for the implementation of business activities.Activities: limited choice of activities.
Safety at work: no legal regulation is applied.
Activities: Any legal activities may be conducted. Certain activities may require certain authorizations.
Safety at work: legal acts provide for conformity with the requirements for safety and health at work.
5. Comparison of accounting procedures.Simplified accounting procedure.More sophisticated and thoroughly regulated accounting procedure.
6. TaxesKey payable taxes: personal income tax, compulsory health insurance contribution, SODRA contributions. Apart from the key taxes (personal income tax, compulsory health insurance contributions, SODRA contributions), income tax, contributions to the guarantee fund, and other taxes are imposed.
7. Scope of business activities for micro-business purposes. Possibilities for a large-scale business exist. More suitable for seeking to attract additional investments or capital from outside.